If you ever had any doubts about whether Caterpillar was serious about going into the rental business, take a look at the cover of the company's 1998 annual report, which came out in March. Right there on the cover, front and back, is The Cat Rental Store.
A public company the size of Caterpillar - a Fortune 50 company - doesn't put a business initiative on the cover of its annual report unless it is very serious indeed about succeeding in that enterprise. If you want to keep it quiet and low-key, you don't put it in the annual report: the investment community takes a move like that as a strong signal of the direction a business is taking - a strategic intention - and demands an explanation.
The questions come mostly from the financial analysts who follow the heavy equipment industry, such as the Machinery Analysts of New York, and others who monitor the financial performance and business strategies of companies in behalf of stockholders and institutions that hold millions of shares of stock and thick portfolios of other securities.
These people want to know what direction the company is heading and what's going to be done with their money. Most of all, they want to know they'll get a nice return on their investment. When the analysts ask, public companies need to be ready with answers. Putting a business move like The Cat Rental Store on the cover of the annual report is about as close to a promise of future earnings as a public company can come without getting in the cross hairs of the Securities and Exchange Commission, which takes a dim view of false signals.
At a press conference at CONEXPO in March, Caterpillar Chairman and CEO Glen Barton said that in 2000, Cat plans to have 100 rental outlets in Europe and another 100 in Latin America, in addition to perhaps 380 in the United States and Canada. Barton pointed out that Cat is the first major company to launch a rental operation in Latin America, and dealers there are "very excited about the rental move."
Latin America could be a good test site for the rest of the world: Cat does business in about 200 countries.
"You must be present to win," said Cat Vice President Ronald Bonati, head of the North American Commercial Division, which includes the rental store initiative. Bonati cited a fact reported in Rental Management in March, that 70 percent of small-equipment users are not currently on Cat dealers' call lists. The rental store initiative is aimed at correcting that.
"Look for us to be just as competitive in that business as we are in every business we're in in North America," Bonati said.
In the past eight months, Cat has introduced six smaller machines for the smaller-contractor market - two mini-excavators, two wheel loaders and two skid-steers - and plans to add two more skid-steers and a mini before the end of the year.
The annual report shows that Cat earned $1.513 billion on sales and other revenues of $20.977 billion, for a return on sales of 7.2 percent. Go back five years and you see that while Cat's revenues have increased 46 percent, net profits have increased 58 percent, so there's plenty of operating leverage - despite the fact that during the same period, Cat acquired 20 other companies, added 88 facilities, formed 17 joint ventures, introduced 244 new or improved products and formed alliances with a number of companies, many of which are now helping Cat create a network of full-service rental stores.
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